Doeren Mayhew Blog Spot

Thursday, August 29, 2013

The word “benchmark” may strike some as organizational lingo, but the practice of benchmarking often proves valuable for non-profits. Non-profit organizations that incorporate financial benchmarks into their operations are better at anticipating negative financial trends and may even see revenues climb, expenses drop and efficiencies improve.

What is Benchmarking?

Benchmarking is an ongoing process of measuring an organization against expectations, past experience or industry norms for productivity and profitability, and then making adjustments to improve performance in relation to those metrics. Ideally, your non-profit will consider both:

Internal benchmarks to monitor and detect trends, based on your organization’s historical results and statistics, as well as expectations.

External benchmarks to ascertain where you’re thriving and where you lag behind, based on data from peers.

Benchmarking provides essential information for effectively developing and implementing strategic plans. It helps an organization keep a watchful eye on its financial health and determine where costs can be cut and revenues increased. Non-profits can use benchmarks to demonstrate their efficiency to stakeholders such as donors and grantors.

Benchmarks for Non-Profits

The first step is to define what your non-profit needs to measure. Focus on the metrics that are most critical to the success of your mission and the key indicators of the organization’s financial health and operational effectiveness. For many nonprofits, those metrics will include:

Program efficiency (program service expenses/total expenses). This ratio identifies the amount you spend on your primary mission, as opposed to administrative and fundraising costs. This ratio is of utmost importance to stakeholders.

Fundraising efficiency (unrestricted contributions/unrestricted fundraising expenses). How many dollars do you collect for every dollar you spend on fundraising? The higher this ratio, the more efficient your fundraising. What qualifies as a good ratio depends on the organization’s size, its types of fundraising activities, and so on.

Operating reliance (program service revenue/total expenses). This ratio indicates whether your nonprofit could pay all of its expenses solely from program revenues.

Organizational liquidity (expendable net assets/total expenses). How much of the year’s total expenses is considered expendable equity or reserves? The higher the ratio, the better the liquidity.

Also consider benchmarks such as average donor contributions, expenses per member and other ratios that measure trends for liquidity, operating yield, revenue, borrowing, assets and similar metrics. No matter which benchmarks you choose, though, you’ll need reliable processes for collecting and reporting the data.

For Comparison’s Sake

Comparing the non-profit’s performance to benchmarks allows you to zero in on areas with the greatest potential for improvement. Armed with this information, you may be able to improve performance without making significant changes in your operations. Further, when comparing against external benchmarks, you might improve performance by simply adopting best practices used by your peers.

You can obtain information on other non-profits’ metrics from websites such as GuideStar and Charity Navigatoror from commercial software. Information also may be available from state government databases and trade associations. Take steps, though, to ensure you’re comparing apples to apples – that the two organizations you are stacking up against each other are truly comparable.

Make it a Team Effort

Some organizations have found it worthwhile to include staff in the benchmarking process. Their involvement in setting aggressive but attainable benchmarks – and measuring progress – can achieve buy-in and help foster teamwork as your non-profit moves toward and surpasses its goals.

Thursday, August 22, 2013

Most employers are required to provide a written notice to employees about the new Health Insurance Marketplace (previously called “the Exchange”) by Oct. 1, 2013, as part of the Affordable Care Act.

If your business is subject to the Fair Labor Standards Act (FLSA), you are required to provide this notice to all existing employees regardless of whether you currently offer a health plan or not. The notice also must be provided to new employees at the time of hiring beginning Oct. 1. Your insurance carrier or third-party health plan administrator is not responsible for providing the notice to employees for you.

According to the Department of Labor, the notice can be provided by either mail, or electronically if electronic disclosure safe harbor requirements are met. The notice to inform employees of coverage options must include:

Information about the new Marketplace

Contact information and description of the services provided

Notice that employees may be eligible for a premium tax credit if they purchase a qualified health plan through the Marketplace

Notice that employees may lose the employer portion of their health benefits plan if they purchase a plan through the Marketplace, and that all or a portion of such contribution may be excludable from income for Federal income tax purposes

Employers can view sample notifications in both English and Spanish on the DOL website.

First delayed in March to the new Oct. 1 date, and in light of the recent postponement of key mandates of the ACA to 2015, the requirement could again be delayed. However, employers will want to keep the requirement on their radars and be prepared to send by the Oct. 1 deadline in case it remains intact.

Wednesday, August 7, 2013

Many people might not know that if you rent out your vacation home for 15 days or more, you must report the income on your tax returns. Determining how this impacts your tax liability and what expenses are eligible to be deducted related to a vacation home can get tricky.

The expenses you can deduct depend on whether the home is classified as a rental property for tax purposes, based on the amount of personal vs. rental use. Adjusting your personal use — or the number of days you rent it out — might allow the home to be classified in a more beneficial way.

Rental Properties

With a rental property, you can deduct rental expenses, including losses, subject to the real estate activity rules. You can’t deduct any interest that’s attributable to your personal use of the home, but you can take the personal portion of property tax as an itemized deduction.

Non-Rental Properties

With a non-rental property, you can deduct rental expenses only to the extent of your rental income. Any excess can be carried forward to offset rental income in future years. You also can take an itemized deduction for the personal portion of both mortgage interest and property taxes.

Friday, August 2, 2013

Facilitated by the speed, ubiquity and anonymity of the Internet, criminals are able to easily steal valuable information such as Social Security numbers and use it for a variety of nefarious purposes, including filing false tax returns to generate refunds from the IRS. One estimate from the National Taxpayer Advocate Service has calculated that individual identity theft case receipts have increased by more than 666 percent from fiscal year 2008 to 2012.

There’s another dangerous facet of identity theft that costs the government, taxpayers and businesses millions of dollars each year. That is business identity theft, which like its consumer counterpart involves the theft or impersonation of a business’s identity. To add insult to injury, business identity theft can have crippling federal tax consequences. The following article summarizes the problem of business taxpayer identity theft, the methods employed by thieves and the means by which you can protect your business.

Business v. Individual Identity Theft
Businesses generally deal with larger transactions, have larger account balances and credit lines than individual taxpayers, and can set up and accept merchant credit card payments with numerous banks. Business information regarding tax identification numbers, profit margins and revenues, officers, and even officer salaries are often public and easily accessed. Yet, remedies and enforcement tend to focus more on individual identity theft. Thus, business identity theft can be more lucrative and arguably less dangerous to engage in than individual taxpayer identity theft.

Methods Used
Only some of the many business identity theft schemes relate to tax. Nevertheless, such schemes can be devastating for businesses, resulting in massive employment tax liabilities for fictitious wages or huge deficiencies in reported income. Identity thieves can use a business’s employer identification number (EIN) to initiate merchant card payment schemes, file false tax returns and even generate hundreds of fake Form W-2s in furtherance of more individual taxpayer identity theft.

How They Do It
Business identity theft can require less effort than individual identity theft because less information is required to establish a business or open a line of credit than is required of individuals. In general, the thief needs to obtain the business’s EIN, which is easy to acquire. Common sources for an EIN include:
Filings made to the Securities and Exchange Commission (SEC) such as the Form 10-K, which includes the EIN on its first page

Public databases that enable users to search for business entities sometimes also display the employer’s EIN

Websites specifically designed to search for EINs, such as EINFinder.com

A business website that openly displays the EIN

Forms W-2, W-9 or 1099
Once a thief has the EIN, he or she may file reports with various state Secretaries of State to change registered business addresses and registered agents’ names, or even appoint new officers. In some cases the thief will apply for a line of credit using this new information. Since the official secretary of state records display the changed information, potential creditors will not be alerted to the fraud. In one case, however, criminals changed the names of a business’s officers by filing with the secretary of state’s office and then sold the whole business to a third party. Once an identity thief has established a business name, EIN and address information, he or she has all the basic tools necessary to perpetrate business identity theft.

Best Practices
Businesses should review their banks’ policies and recommendations regarding fraud protection. They should know what security measures are being offered and, if commercially reasonable, take them. In a recent U.S. district court case from Missouri, the court found that a bank was not liable for a fraudulent $440,000 wire transfer because it had offered the business a commercially reasonable security procedure, and the business had rejected it. The decision cited Uniform Commercial Code Article 4A-202(b), as adopted by the Missouri Code. Many other states have also adopted the UCC, meaning victimized businesses might find themselves without recourse against their banks in the event of a large fraudulent wire transfer.

Other easy preventative measures that businesses can take include monitoring their financial accounts on a daily basis. They should follow up immediately on any suspicious activity. Businesses should also enroll in email alerts so that they would immediately be apprised of any change in your account name, address or other information.

A business should also monitor the information on its business registration frequently, whether or not the business is active or inactive. Often businesses that close do not go through the formal dissolution process, which terminates all of the corporate authority. They instead let the charter be forfeited by the secretary of state. These forfeited charters may be easily reinstated and hijacked by identity thieves.

After Fraud Occurs
If it is too late, and a fraudulent transaction has occurred in your business’s name, take immediate action by contacting your bank, creditors, check verification companies and credit reporting companies. Report the crime to your local law enforcement authorities and your state’s secretary of state business division. Finally, whenever possible, memorialize all correspondence in writing and keep it in your records.

Monday, July 22, 2013

Alternative dispute resolution (ADR) has been touted as the remedy to settling contractor conflicts in the courts. For starters, it’s significantly less costly and timely. But the greatest benefit is that there are truly no “winners” or “losers” in these disputes, as the goal is to find a common ground between the parties involved. It’s no wonder that ADR is commonly used in the construction industry. Read below for more about what ADR involves and how it can be applied in disputes.

ADR: Is it Truly Effective?

ADR is a technique used to assist disagreeing parties in coming to some sort of agreement, short of the traditional legal system. For decades, studies have proven ADR is not simply a fad, but a reliable, less costly process, leaving room to maintain respectable business relationships.

In spite of the statistics, many construction associations have steered clear of mandating ADR procedures in contracts. However, contractors and subcontractors have taken the initiative to individually implement ADR clauses. There are three ADR techniques commonly used by contractors:

Non-binding neutral

Mediation

Arbitration

Non-Binding Neutral

A non-binding neutral is a person or person(s) impartial to the dispute at hand. They hear each respective party’s position, access all of the evidence and legal concerns, and conduct interviews to gather further information when needed. This process enables neutrals to advise both parties on the way to resolve the dispute.

Mediation

Whereas a non-binding neutral provides an opinion on how the dispute should be settled, mediators go a step beyond to help the parties come to an agreement. This process typically involves one or a group of mediators and can be held in an informal, public setting. This can cut court costs and fees, as mediation does not require mandating circumstances or time consumption. It can take a few weeks to come to an agreement in a mediation process, versus the months and even years to settle a court case.

Arbitration

If the above non-binding and mediation processes are ineffective in your particular circumstance, arbitration is another common process that is considered to be more efficient, private and direct. Different from a non-binding approach, arbitration leads to a final, binding decision that results in an “award.” Of the three most common forms of ADR, arbitration is most similar to traditional litigation. Judges can be hired to help facilitate resolution. The parties are given the power to determine the issues to discuss in litigation and even how the award is to be given, which is transferred in writing. Arbitrators overseeing construction legal proceedings are usually a panel of three experts with extensive industry-related experience.

Do the Research and Check Your Facts

Having a solid case is critical to any dispute, and facts are the key. Financial advisors and accountants can be very influential in this process, known as fact-finding. Usually performed in tandem with ADR, a “fact-finder” will either work as a neutral or partial contact, disseminating information and relaying it through reports. Their goal is to assist the parties in reaching a settlement or solution through the bare facts.

Finding the Best Neutral

It takes effort and thorough research to find a neutral (otherwise referred to as mediator or arbitrator) to navigate the issues and find resolutions to complex faults in a project. However, this step is critical in finding the right person to advise your case and reap results. The American Arbitration Association (AAA), along with several industry advisory committees, has established criteria to help you make the best selection. Your neutral should have acquired most or all of the following:

At least 10 years of construction industry experience

Mandatory AAA training for dispute avoidance and resolution

Strong sense of neutrality and commitment to impartiality and objectivity

Effective judicial skills

Reputation for neutrality work

Availability and accessibility to guide this process quickly and with ease

The AAA’s website, www.ADR.org, offers a list of mediators and arbitrators who are trusted in the industry.

While no project will ever be perfect, many disputes can be avoided by simply creating open communication of the responsibilities and resolution options within your contracts with clients and subcontractors.

Monday, July 15, 2013

For most businesses, vendors are part of day-to-day operations, generating thousands of payments to suppliers and service providers over the course of a year. Does your business have the internal controls in place to detect whether you may be overpaying?

Overpayment to vendors is a very real risk that could impact your organization’s bottom line and result in significant financial loss if not quickly detected and resolved. A variety of errors can result in overpayment, including miscalculations, duplicate payments, neglected rebates and allowances, misunderstanding of contract terms, tax overpayment, and charges for goods and services not received.

To avoid financial loss, you may want to consider a vendor audit. A vendor audit is an external audit of invoices, contracts and other related data from your suppliers. Other best practices for detecting overpayment include:

Consider the “most favored nation” clause, which is a contract provision in which a seller agrees to give the buyer the best terms it makes available to any other buyer. During a recent Doeren Mayhew audit, the vendor refused to reveal invoices distributed to other clients, which triggered our client to question whether the supplier was in compliance with the agreement.

Compare estimates and invoices to ensure charges are accurately reflected. Often times estimates are used to create contracts, and buyers may forget to review actual invoices versus estimated prices.

Ensure vendor invoices are being regularly monitored. Look out for double costs that may not catch your eye as a mistake.

Conduct select testing on larger suppliers, some of which may tend to increase prices each year. A Doeren Mayhew client was assured a discount for each purchase under a three-year contract with a major automobile parts supplier. Our vendor audit specialists found that third-year prices were significantly higher.

Review contracts before renewing them and take note of percentage-of-fee increases.

Regularly review vendor charges for expenses to ensure there are no duplicates, such as charged meals to hotels and meal receipts for the same day.

Verify that audit clauses are written into vendor contracts and purchase orders, so that auditors may obtain and review any documents related to your contract and agreement. Should you need a vendor audit, this clause will ensure auditors can review all data necessary to provide an accurate report.

Strong vendor relationships are essential to your business, and while they are trusted suppliers, miscommunication and missteps may sometimes occur. Vendor audits not only help improve supplier relationships, but help detect fraud and improve systems and controls both in your business as well as the vendor’s.

Monday, July 8, 2013

Under the recent health care act, starting in 2013, taxpayers with earned income over $200,000 per year ($250,000 for joint filers and $125,000 for married filing separately) must pay an additional 0.9 percent Medicare tax on the excess earnings. Employers are required to withhold the tax beginning in the pay period in which wages exceed $200,000 for the calendar year — without regard to the employee’s filing status or income from other sources. So, it’s possible your employer:

Will withhold the tax even though you aren’t liable for it. You can’t ask your employer to stop withholding the tax, but you can claim a credit on your income tax return.

Won’t withhold the tax even though you are liable for it. You may use a Form W-4 to request additional income tax withholding to cover your liability and avoid interest and penalties.

Friday, June 21, 2013

According to the New York Times, in September 2005, a senior Wal-Mart lawyer received an email from a former executive at the company’s largest foreign subsidiary, Wal-Mart de Mexico. The former executive described how Wal-Mart de Mexico had orchestrated a campaign of bribery to win market dominance.

Fast forward to 2013, when Wal-Mart recently disclosed in its SEC filing the ongoing impact of its alleged violations of the Foreign Corrupt Practices Act (FCPA), including:

Expanded investigations into additional allegations regarding potential violations of the FCPA in foreign markets such as Brazil, China and India

A recent study by Deloitte Forensics Center reports that only 29 percent of executives surveyed were very confident their company’s anti-corruption program would prevent or detect corrupt activities. This low level of confidence indicates that many businesses may need to evaluate and upgrade their anti-corruption efforts. All businesses, public and private, that operate in foreign markets need to take steps to avoid having to make a similar disclosure.

In general, the FCPA:

Prohibits U.S. businesses (incorporated or unincorporated “domestic concerns”), residents and citizens, and foreign companies listed on a U.S. stock exchange from paying or offering to pay, directly or indirectly, money or anything of value to a foreign official to obtain or retain business.

Requires any company (including foreign companies) with securities traded on a U.S. exchange or required to file periodic reports with the SEC to:

Keep books and records that accurately reflect business transactions.

Maintain effective internal controls.

Contains an Anti-Bribery provision that includes broad third-party payment provisions under which the actions of foreign subsidiaries and other third parties (including agents, consultants, distributors, joint venture partners, etc.) can result in FCPA liability to a parent company or the entity engaging the third party. Even without actual knowledge that an improper payment has been made, a company can be found guilty of a violation.